Stop Operating with a Guild Mindset

When guilds were originally established in the Middle Ages, their primary purpose was to build and protect the economic value of skills and knowledge. Craftsmen allied themselves to essentially create firewalls around their primary competitive offering in the market. These inward-looking groups were able to impose discipline on their practice: enforcing standards, mentoring and training new entrants, and refining and building on old expertise to create new more valuable knowledge.

Today, the guild mentality persists within companies, where functions such as marketing, sales, finance, IT, human resources and R&D all have their own area of special expertise. Like a guild, each of these departments looks to become world-class at what it does. Each has its own set of mandates to fulfill and each has a very rational and plausible internal rationale for asserting its primacy.

However, this guild mentality often creates debilitating incoherence within the larger company. These individual functions end up competing against each other — for funding, for the time and attention of senior executives, and for the most talented people. Each initiative claims it is critical to the success of the organization, yet their competition puts that very success in jeopardy.

How does one put a check on this kind of unproductive jousting? The key is to nurture the healthy instinct for competitive advantage through specialized knowledge — but not the guild-like silo instinct that can cause unproductive internal competition. Functional leaders in business today are not really like the masters of a professional carpentry, masonry, or glass working guild, whose sphere of knowledge was primarily limited to the methods of their own craft.

Instead, today’s leaders must identify and build on a distinct set of capabilities that are core to the entire company’s success — a set of capabilities to which all departments contribute their specialized knowledge. With all functional leaders focused on supporting these cross-company capabilities, the siloed guild mentality fades away. Working together, functional groups become an elite, multi-faceted cadre of specialists working cohesively to build, refine and extend the three to six key capabilities that provide competitive advantage.

For example, the success of Frito-Lay, the snack division of PepsiCo, is built on three integrated capabilities, rather than a system of siloed functional departments. One of these key capabilities is direct store delivery (DSD), in which Frito-Lay depends on its own fleets of trucks rather than that of a third-party vendor; Frito-Lay’s skilled and motivated drivers are known for their ability to build relations with store owners, commandeer shelf space and even offer stores credit.

Frito-Lay’s DSD system relies on sophisticated analytics, tools and supply chain expertise – skills and knowledge that come from traditionally distinct functional backgrounds. Marketing, sales teams and the DSD force itself operate with tremendous coordination to ensure that they are consistently aligned in their business objectives. IT also plays a central role: Frito-Lay’s pioneering use of the hand-held computer in the 1980s was what enabled its DSD capability in the first place.

This cross-functional effort gives Frito-Lay a clear, distinct advantage over its competitors in getting the right product to the right place at the right time. Most consumer packaged-goods companies struggle with market tests of new products, because they rely on retailers to stock the shelves; the associated slotting fees can add up to $1 to $2 million for a new product in the United States. But Frito-Lay stocks its own products. This gives it tremendous cost savings and the flexibility to launch and test new products. If the products don’t attract customers, Frito-Lay can withdraw them quickly. If the products are hits, that’s even better; because it “owns the shelf,” there’s a direct link back to innovation and marketing. It can rapidly build demand, which reinforces the relationship with retail grocers.

Just as the medieval guilds built specific skills and knowledge to protect their economic value, companies nowadays need to develop a distinctive capabilities system that differentiates them in the market. Accomplishing this, however, now requires that functional departments work together in a way that truly spans the entire firm. This requires executives and strategic thinkers to think more holistically about the company’s differentiating capabilities as a whole — and how it can use those capabilities to bring ever greater value to the market.

Paul Leinwand is a Partner in Booz & Company’s global consumer, media, and retail practice. He serves as chair of the firm’s Knowledge and Marketing Advisory Council. Cesare Mainardi is Managing Director of Booz & Company’s North American business and is a member of the firm’s Executive Committee. They are co-authors of The Essential Advantage: How to Win with a Capabilities-Driven Strategy, published by Harvard Business Review Press.